Tag Archives: The Fed

U.S. Inflation Slowdown Reshapes Rate Expectations

U.S. Inflation Slowdown Reshapes Rate Expectations Amid New Pressures from Trump Administration

Recent U.S. inflation data revealed an annual increase in the Consumer Price Index (CPI) to 2.9% in December 2024,
up from 2.7% in November, aligning with forecasts.
Meanwhile, core inflation, which excludes food and energy prices, slowed to 3.2% from 3.3%,
marking its first decline since July of the same year.

 

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Inflation

On a monthly basis, the overall CPI rose by 0.4% in December, higher than the 0.3% increase recorded in November.
Core inflation rose by only 0.2%, reflecting a clear slowdown compared to previous months.
This growth was driven by higher housing costs, used and new car prices, and airfares,
despite declines in personal care and communication expenses.

 

 

The Federal Reserve

Impact of Inflation Data on Fed Policy
The new data has reshaped market expectations for the Federal Reserve’s interest rate trajectory in 2025.
With inflationary pressures easing slightly, futures traders are now pricing in a 50% probability of two rate cuts by the end of the year,
with the first expected in June.

Prior to the report, expectations centered around a single quarter-point rate cut for the year,
highlighting the data’s influence on economic outlook adjustments.

 

 

Trump

Anticipated Trump Administration Policies and Their Potential Impact
As President-elect Donald Trump’s inauguration approaches, concerns are mounting over
the potential inflationary impact of his proposed economic policies.
Trump’s plans include imposing high tariffs on imported goods, cutting corporate taxes,
and restricting immigration—factors that could drive up production costs and consumer prices.

Some economists warn that these policies might complicate the Federal Reserve’s efforts
to maintain long-term economic stability by balancing inflation and unemployment.

 

 

 

 

 

 

 

Market Reactions

Following the inflation report, U.S. equity futures rose, reflecting relative optimism about potential Fed rate cuts.
Meanwhile, the yield on 10-year Treasury bonds increased by 3 basis points,
exceeding 4.7%, signaling continued concern over long-term inflation trends.

 

Long-Term Concerns

Despite the relative slowdown in core inflation, it remains above the Federal Reserve’s 2% target.
Additionally, Trump’s proposed policies could complicate the economic equation by potentially sparking a new wave of inflation.

Analysts point out that the next inflation report will play a critical role in shaping monetary policy decisions.
As discussions continue about the measures Trump’s administration might implement,
the U.S. economy remains on edge, anticipating potential developments in the new year.

 

 

U.S. Inflation Slowdown Reshapes Rate Expectations

Federal Reserve December Meeting Minutes

Federal Reserve December Meeting Minutes: Progress in Reducing Inflation with Caution

The Federal Reserve released its December meeting minutes,
shedding light on members’ views on monetary policy and the economy.
The minutes indicated progress in reducing inflation toward the 2% target,
but inflation remains relatively high, necessitating a cautious monetary policy stance.

 

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Monetary Policy and the Economy

The committee members affirmed that the U.S. economy continues to grow robustly,
with improved labor market conditions, despite a slight uptick in the unemployment rate.
Most members agreed on a 25-basis-point rate cut, bringing interest rates to the range of 4.25% to 4.5%,
aiming to promote economic stability and curb inflation.
However, some members preferred maintaining rates unchanged, citing elevated inflation risks.

 

Future Approach to Monetary Policy

The minutes highlighted that the committee may have reached a point where a slower pace of easing monetary policy is necessary,
with a focus on evaluating economic forecasts and the impact of previous decisions.
It was emphasized that any future decisions would be data-dependent and aligned with achieving inflation and employment goals.

 

 

 

 

 

 

Economic Risks

Despite progress in containing inflation, members pointed to potential risks,
including increased consumer spending and mounting inflationary pressures.
They also stressed the importance of monitoring external economic factors,
such as trade and immigration policies, which could influence the U.S. economy.

 

Inflation and Interest Rate Outlook

Many members predicted that inflation might remain elevated for a longer period,
necessitating the continuation of restrictive monetary policy.
However, gradual easing could be considered if economic conditions improve faster than expected.

The December meeting minutes underscore the Federal Reserve’s focus on balancing economic support with controlling inflation,
emphasizing a cautious and deliberate approach to evaluating future developments.

 

 

 

 

Federal Reserve December Meeting Minutes

Federal Reserve Minutes: A Balanced Vision Between Reducing Inflation and Supporting the Economy

Federal Reserve Minutes: A Balanced Vision Between Reducing Inflation and Supporting the Economy

The minutes of the U.S. Federal Reserve’s latest meeting, released today,
shed light on the central bank’s monetary policy approach and its assessment of current economic conditions.
This comes amid efforts to achieve price stability while supporting the labor market.
The discussions highlighted the importance of adopting a cautious and balanced strategy to address inflation
while maintaining economic growth momentum.

 

 

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Details

At the outset of the discussions, Federal Reserve members acknowledged the progress made
by the U.S. economy toward achieving the inflation target, though it remains above desired levels.
They also noted that economic activity has continued to expand robustly,
accompanied by significant improvements in the labor market, despite a slight uptick in unemployment rates.
The minutes emphasized that this expansion reflects the resilience of the U.S. economy in the face of challenges.

 

The members unanimously agreed to lower the target range for the federal funds rate by 25 basis points.
They considered this decision a boost to the economy, supporting the labor market and aiding further progress in reducing inflation rates. Additionally, they stressed the importance of continuing to reduce securities holdings as part of the broader monetary policy strategy.

 

Regarding future directions, the minutes indicated that the Federal Reserve plans to make decisions based on incoming economic data, emphasizing that monetary policy decisions are not predetermined.
Members anticipated that if inflation continues to decline sustainably and the economy approaches full employment levels,
moving toward a more neutral monetary policy stance may be appropriate.

 

The minutes also addressed the risks facing the U.S. economy.
While most members viewed risks to the labor market and inflation as balanced,
differing opinions emerged on how to respond to future changes.
Some suggested the possibility of temporarily pausing policy easing if inflation remains high,
while others argued that a weakening labor market or economic activity might necessitate accelerating policy easing.

 

A significant challenge highlighted in the minutes is achieving a balance between easing policy too quickly,
which could hinder progress in combating inflation, and easing too slowly,
which could negatively impact economic activity and employment.
Federal Reserve members also noted the uncertainty surrounding the neutral interest rate level,
adding complexity to assessing the degree of policy restrictiveness.

 

 

 

 

 

 

 

A Deliberate Vision for the Future

The minutes reflect the Federal Reserve’s commitment to a carefully balanced approach to its dual objectives,
with a continual evaluation of economic data to determine the optimal path for monetary policy.
This strategy underscores the flexibility to adapt to economic changes and future challenges,
reinforcing confidence in the Federal Reserve’s ability to support the U.S. economy while achieving price stability.

 

 

 

 

Federal Reserve Minutes: A Balanced Vision Between Reducing Inflation and Supporting the Economy

Did Powell Pour Gasoline on the Fire in the Stock Markets?

Did Powell Pour Gasoline on the Fire in the Stock Markets?

Jerome Powell’s latest speech at the Jackson Hole Symposium ignited the financial markets, as his statements were interpreted as affirming the anticipated interest rate cuts from the Federal Reserve, potentially driving the stock market to further gains. Powell’s remarks, considered hawkish, indicated the Fed’s readiness to lower interest rates in the near term, which excited investors and led to expectations of additional cuts down the line.

 

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Impact of Powell’s Speech on the Stock Market

Yardeni’s Forecast

Optimism and Potential Risks

 

 

 

 

 

Impact of Powell’s Speech on the Stock Market:

Analysts at Yardeni Research predicted that Powell’s statements would be very positive for the stock market, as they reinforce market expectations for a rate cut in September, increasing the chances of additional gains in stocks, particularly in sectors sensitive to interest rate changes. Lower interest rates typically boost stocks by reducing borrowing costs and increasing potential corporate profits, making stocks more attractive compared to fixed-income assets.

However, there is a growing sense that the market may have already priced in many of the expected cuts. Moreover, stronger-than-expected economic news in the coming weeks could dampen expectations of a rate cut.

 

 

 

 

 

 

Yardeni’s Forecast

Market Surge or Meltdown

While Yardeni Research remains optimistic about a “2020 rally” scenario,
in which they expect the S&P 500 index to reach 5,800 points by the end of the year,
they do not rule out a “meltdown” scenario, where there could be a rapid and unsustainable rise in stock prices.
This optimism is attributed to expectations of earnings growth and a forward price-to-earnings (P/E) ratio of 21.

Given the large liquidity available in money market funds,
it is expected that money will flow into stocks if money market yields fall due to rate cuts.
Signs are already showing that funds are shifting towards higher-risk assets,
such as small-cap stocks, increasing the likelihood of greater investment in this area as interest rates decline.

 

 

 

 

 

 

Optimism and Potential Risks

Despite the prevailing optimism, geopolitical risks and inflation concerns remain.
Yardeni Research warns of the potential return of a scenario similar to the 1970s, where geopolitical tensions,
such as military moves between Israel and Hezbollah, could disrupt global oil supplies and drive up energy prices,
complicating the Fed’s efforts to maintain economic growth and price stability.

 

 

 

Did Powell Pour Gasoline on the Fire in the Stock Markets?

 

What Does the Sudden Drop in Inflation Mean for the Federal Reserve?

What Does the Sudden Drop in Inflation Mean for the Federal Reserve?

The Producer Price Index (PPI) showed a 0.1% increase in wholesale prices in July,
which is below analysts’ expectations.

 

 

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The decline in some components of the index pointed to a lower reading for the Personal Consumption Expenditures (PCE) index,
which is the Federal Reserve’s preferred measure for tracking consumer inflation.

This unexpected reading may give the Federal Reserve more confidence that inflation is moving toward its annual target of 2%.

Wholesale prices rose less than expected in July, which may give the Federal Reserve more confidence to lower interest rates.
The Producer Price Index indicated that price increases slowed in July,
according to a report from the Bureau of Labor Statistics on Tuesday.
The index rose by 2.2% over the year ending in July, while prices increased by 0.1% over the month.

 

 

 

 

Projections

The readings came in below analysts’ expectations, boosting confidence among economists in the continued decline of inflation.

Slow price increases could set the Federal Reserve up for a much-anticipated rate cut in September.

An economist commented on the matter, saying, “The door is open for the Federal Reserve to cut interest rates in September. If the data continues in this manner, the Federal Reserve will have plenty of room to further reduce rates this year.”

The data suggests a decline in the Federal Reserve’s preferred measure of inflation. Economists view the Producer Price Index as an indicator of future consumer inflation trends, as increases in wholesale prices often pass on to shoppers. Components of the Producer Price Index are also used to calculate the Personal Consumption Expenditures index, the Federal Reserve’s preferred inflation measure.

 

 

What Does the Sudden Drop in Inflation Mean for the Federal Reserve?

 

 

 

 

 

 

 

 

 

 

Opinions

Economist Megan Martin Schoenberger wrote on X: “The Producer Price Index categories that feed into the PCE are starting to slow,” highlighting improvements in the costs of air travel, health insurance, and auto insurance.

Due to this easing, economists said Tuesday’s report is likely to boost Federal Reserve officials’ confidence that inflation is moving toward the 2% annual target.

Oren Klachkin, an economist at Nationwide Financial Markets, wrote:
“The weaker-than-expected increase in producer prices adds to the evidence of easing price pressures,
which will help tame PCE inflation in the second half of 2024.
Better balance in product and labor markets should ease inflation and put the Federal Reserve on a path to lower interest rates,
starting in September.”

 

 

 

What Does the Sudden Drop in Inflation Mean for the Federal Reserve?

 

Top News

Top News 

Here are the top daily news from the Evest platform:

 

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India

Indian Finance Minister Urges Banks to Increase Deposits

Sitharaman stated during a briefing after the Reserve Bank of India’s board meeting: “Both the Reserve Bank of India and the government want banks to focus on their core activities. This is your livelihood.” She added that banks should offer attractive deposit schemes, echoing statements made by the central bank governor Shaktikanta Das in his recent monetary policy address.

 

 

 

 

 

 

Funds

Hedge Funds Bet on the Largest Commodity Decline Since 2011

Hedge funds have taken a net short position, selling about 153,000 contracts, including futures and options contracts across 20 commodity markets, in the week ending last Tuesday. This is a historic high, based on data records dating back to 2011, according to data from the U.S. Commodity Futures Trading Commission compiled by Bloomberg. This move marks a significant shift in sentiment since the supply disruptions during the COVID-19 pandemic and the talk of a super commodity cycle led speculators to bet on record highs in 2021.

 

 

 

 

 

Trump

Trump Campaign Claims It Was Hacked and Blames Iran

The campaign of Republican U.S. presidential candidate Donald Trump said on Saturday that some of its internal communications were hacked and blamed the Iranian government, citing past animosity between Trump and Iran but without providing evidence. The campaign’s announcement came after the news website Politico reported that it had started receiving emails from an unknown account containing documents from inside Trump’s campaign.

 

 

 

 

Top News 

A Tough Start for the Federal Reserve’s Journey

A Tough Start for the Federal Reserve’s Journey

Is the United States facing an economic recession?
If so, we can expect increased volatility as markets and central bank officials come to realize this.

 

 

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stock Rule

 

 

 

 

 

 

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The U.S. Federal Reserve may have pushed the world’s largest economy toward a devastating recession due to its stringent efforts to combat inflation. This troubling question has shaken global markets after a long period of stability, and it’s likely that more turbulence will follow before we get a clear answer.

 

Two weeks ago, I shifted my stance from tightening to easing, abandoning my support for raising interest rates in favor of an immediate rate cut to avoid a recession. It has become clear that this change was not premature. Since then, evidence has rapidly accumulated pointing to a weakening labor market and slowing inflation, indicating that the Federal Reserve may have delayed appropriate action for too long.

 

 

Notably, the average U.S. unemployment rate over three months has risen to 4.13%, an increase of 53 basis points from its lowest level over the past year. This increase surpasses the “stock  Rule” threshold, which typically signals the onset of a recession and a further rise in unemployment.

 

Moreover, job growth and resignation rates have slowed, and unemployment claims, both initial and continuing, have increased, reinforcing signs of a weakening market. Regarding inflation, the Fed’s preferred measure, the core personal consumption expenditures deflator, showed a modest 0.2% increase in June, suggesting relative stability.

 

Average hourly earnings increased by 3.6% in July compared to the previous year, down from 3.8% in June, aligning with the slowing trend in the Employment Cost Index in the second quarter.

 

 

 

 

 

 

 

stock Rule

But will the “stock Rule” hold this time? Some economists argue that the rise in labor force participation, not layoffs, has driven up the unemployment rate. Even Jerome Powell, the Federal Reserve Chair, has noted that the rule is more of a statistical regularity rather than an economic law that can be wholly relied upon.

 

However, despite these doubts, the “stock Rule” has proven effective in the past, particularly during periods when the labor force was also expanding rapidly. It reflects a fundamental economic process in which labor market deterioration tends to be self-reinforcing, leading to higher unemployment.

 

So, what should the Federal Reserve do? The longer it waits, the higher the potential losses. The current monetary policy is restrictive and becoming more so as both price and wage growth slow. There is an urgent need to move towards a neutral stance.

 

Estimates by members of the Federal Open Market Committee place the neutral interest rate between 2.4% and 3.8%. This means the Fed has a long way to go to reach this level from the current effective federal funds rate of 5.3%. In the event of a recession, the Fed would need to cut rates to 3% or lower.

 

However,

an immediate rate cut seems highly unlikely, especially given that Federal Reserve Chair Jerome Powell rarely takes such actions outside of the regular monetary policy meetings—only in the face of a significant shock that dramatically changes economic forecasts or threatens financial stability.

 

This brings us to the upcoming monetary policy meeting on September 17-18. The Fed might lower rates by either 25 or 50 basis points, depending on the economic data available at that time. After that, the path is uncertain. We could see a gradual series of 25-basis-point rate cuts that bring rates below 4%, or perhaps a sharper move towards stimulative policy if the “stock  Rule” persists.

 

Ultimately, uncertainty around the direction of monetary policy may linger for some time, which means we could witness additional volatility in the stock and bond markets.

 

 

 

A Tough Start for the Federal Reserve’s Journey

 

Before the Federal Reserve Meeting

It is expected that the central bank will keep the federal funds rate at its highest level in 23 years.

Many central bank watchers are looking forward to when It will start cutting interest rates.

 

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What Central Bank Governors are Expected to Do

Most economists and traders believe that the Federal Reserve will maintain its benchmark interest rate when it announces its monetary policy decision on Wednesday. The Federal Reserve has kept the influential interest rate at its highest levels in 23 years since last July, aiming to slow the economy and thereby tame inflation.

To some extent, this approach has been successful. While progress has largely stalled so far this year, inflation has significantly decreased from its peak in 2022. The labor market has started to weaken through a decrease in hiring rather than more layoffs, which is precisely what the Federal Reserve said it wanted to see.

 

 

 

 

 

 

Where They Go From Here

Some economists have argued that central bank governors should cut interest rates at this week’s meeting, no matter how slim the chances of this action’s success. On the other side of the spectrum, other economists believe that the Federal Reserve should wait until next year.

However, neither outcome seems likely, even according to those theorizing. Most central bank watchers expect Federal Reserve officials to start making cuts when they meet next September. Despite the non-partisan nature of the Federal Reserve, cutting rates in September could be controversial in an election year. However, the Federal Reserve has set a precedent for cutting interest rates before elections in the past.

 

 

 

 

 

 

What Jerome Powell Will Say

After the meeting concludes on Wednesday, Federal Reserve Chairman Jerome Powell will hold a press conference, where he is likely to repeat his recent comments.

He has recently spoken about how the focus of central bank governors in the United States is likely shifting from fighting inflation to balancing their dual mandate of maintaining employment without reigniting price increases.

Economists do not expect Powell to shed more light on the timeline for rate cuts during the press conference.

 

 

The Federal Reserve Closely Monitors Economic Growth Data

The Federal Reserve Closely Monitors Economic Growth Data While Evaluating When to Begin Cutting Interest Rates

Despite signs of a slowdown in recent weeks, economic growth is likely to remain stable until the end of the second quarter.

 

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  1. Details
  2. Factors Contributing to Second Quarter Growth
  3. Consumer Spending Remains Strong

 

 

 

 

Details

Economists surveyed by Dow Jones Newswires and The Wall Street Journal expect the GDP to grow at an annual rate of 2.1% in the second quarter. The Bureau of Economic Analysis is set to release the closely-watched data on Thursday. If the estimates are accurate, this growth would be higher than the first quarter but still less than the second half of last year.

Moody’s Analytics economist Matt Collier wrote, “This would also be consistent with the economy expanding at a slightly slower pace than its estimated potential and consistent with the contraction observed in the first half of 2024.”

Economic activity has slowed, and inflation has declined as the Federal Reserve has kept its benchmark lending rate at its highest level in 23 years over the past year. Expectations have grown that the Federal Reserve will soon begin to lower the federal funds rate, but central bank officials say they are monitoring economic data for more evidence that inflation is clearly trending towards the Fed’s 2% annual target.

 

 

 

 

 

Factors Contributing to Second Quarter Growth

Some pillars of the economy are contributing to raising the GDP.

Inventory levels, which economists say are highly volatile and difficult to predict, likely boosted the economic growth measure in the second quarter. Many economists updated their GDP estimates after Wednesday’s report showed increased accumulation. Durable goods orders, such as heavy equipment for businesses, also showed signs of growth during that period.

However, no sector has influenced economic growth in recent years as much as consumer spending, and the second quarter will be no different, according to economists.

Consumers continued to spend despite inflationary price pressures and rising borrowing costs, helping the economy avoid the recession many believed would occur last year. So far, economists this year thought consumers would stumble as pandemic-era savings ran out.

 

 

 

 

 

Consumer Spending Remains Strong

Nevertheless, the second quarter was better than expected, culminating in a surprising June report showing little change despite economists’ expectations of declining spending.

Wells Fargo economists wrote, “Consumer spending is not even close to free fall.” Scott Anderson, chief U.S. economist at Bank of Montreal, said consumers still have significant trends working in their favor.

Anderson wrote, “Among the most favorable factors, in our view, are rising household wealth to record levels, rising real disposable income, and historically low unemployment levels. We may even see the impact of high-interest rates begin to fade over time, setting the stage for an economic growth rebound and a more manageable inflation rate in 2025.”

 

 

 

 

The Federal Reserve Closely Monitors Economic Growth Data

 

What Does the Federal Reserve’s “Beige Book”

What Does the Federal Reserve’s “Beige Book” Reveal About the State of the U.S. Economy in the Coming Period?

Economic growth is starting to slow down in more sectors, and the growth outlook for the next six months is expected to face uncertainty due to upcoming elections, geopolitical conflict, and inflation, according to the Beige Book released by the Federal Reserve on Wednesday.

 

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The report added

 

 

 

 

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The Federal Reserve said in its economic report, the “Beige Book,” which is based on narrative information gathered by 12 Federal Reserve Banks up until July 8:

“The outlook for the economy suggests a slowdown in growth over the next six months due to uncertainty regarding the upcoming elections, domestic policy, geopolitical conflict, and inflation.”

 

The report added that the weaker outlook comes as most sectors in this report indicated a modest growth pace, but five of them pointed to “stable or declining activity—up from three banks compared to the previous reporting period.”

 

In a sign of further cooling in the labor market, the report noted that several sectors saw some improvement in labor supply conditions with a decrease in labor turnover, reducing the demand for finding new workers.

 

 

 

 

The report added

“Looking ahead, contacts in many sectors expect to be more selective in who they hire and not fill all vacant positions.”

 

The labor market has become a growing focus in recent weeks after Federal Reserve Chairman Jerome Powell indicated a slight shift in the central bank’s focus towards easing in the labor market instead of focusing solely on inflation.

 

Meanwhile, the pace of inflation was modest, as the Beige Book showed that “most sectors indicated that input costs have begun to stabilize.”

 

 

What Does the Federal Reserve’s “Beige Book”